How to Accept Stock Donations for Your Nonprofit

Stock donations are a valuable form of non-cash giving, offering nonprofits a significant opportunity to secure financial support. These contributions involve the transfer of securities, such as company shares, from a donor to a charitable organization. Establishing clear procedures for handling these gifts is fundamental for both the nonprofit and the donor, ensuring compliance and maximizing their benefit. Properly managed stock donations provide substantial resources, supporting the organization’s mission and programs.

Establishing Your Organization’s Framework for Stock Donations

Before accepting stock donations, a nonprofit must establish a robust internal framework to manage these contributions. A foundational step involves setting up a dedicated brokerage account in the organization’s name to receive and hold donated securities. Brokerage firms typically require documentation, including the organization’s Employer Identification Number (EIN), its 501(c)(3) determination letter from the IRS, and often a copy of the board resolution authorizing the account and designating signatories. When selecting a brokerage, nonprofits should consider transaction fees, services tailored to charitable organizations, and the ease of liquidating assets.

Developing a clear, written internal stock donation policy is another preparatory measure. This policy should outline the organization’s criteria for accepting stock, such as distinguishing between publicly traded securities and more complex assets like restricted or closely held stock, and may include a minimum value threshold for acceptance to avoid administrative burdens for small gifts. The policy also defines staff roles and responsibilities in managing stock gifts, from initial donor communication to the final disposition of the shares. It should also provide general guidelines on whether the organization intends to hold or promptly sell donated stock, informing strategic financial decisions.

Understanding stock valuation principles is also important. Publicly traded stock, listed on major exchanges, is typically valued based on its market price on the date of the gift. Restricted stock, which may be subject to certain transfer limitations, or closely held stock, from privately owned companies, presents unique considerations. These less liquid assets often require independent appraisal to determine their fair market value, a process that can be more complex and time-consuming. Understanding these valuation principles helps the organization prepare for the accounting and reporting requirements associated with each type of gift.

Facilitating and Receiving Stock Transfers

Once the foundational framework is in place, the next step involves facilitating the transfer of stock from a donor. Providing clear, step-by-step instructions to donors is paramount for a smooth transaction. For most publicly traded securities, the transfer occurs electronically through the Depository Trust Company (DTC) system. Donors will need specific information from the organization, including its brokerage account name, the organization’s account number, and the DTC participant number of the receiving brokerage firm.

Should a donor possess physical stock certificates, the process requires different instructions. Donors typically need to endorse the certificate, ensuring the signature matches the name on the certificate exactly, and obtain a medallion signature guarantee from a financial institution. This guarantee protects against fraudulent transfers and is a standard requirement. The endorsed certificate should then be mailed to the organization’s brokerage firm, often via registered mail for security.

Upon successful transfer of the shares into the organization’s brokerage account, confirming receipt and promptly acknowledging the gift is essential. The organization should immediately log the donation date, the number of shares received, and the donor’s information for internal record-keeping. For non-cash contributions, including stock, the IRS requires a written acknowledgment for gifts valued at $250 or more. This acknowledgment must include a description of the donated stock, the date of the transfer, and a statement confirming that no goods or services were provided to the donor in exchange for the gift.

Managing Donated Stock and Compliance

After receiving a stock donation, the organization must determine its value for accounting and IRS reporting. For publicly traded stock, the fair market value is typically calculated as the average of the high and low trading prices on the date the shares are transferred into the organization’s account. For non-publicly traded stock, such as shares in a private company, the organization generally relies on a qualified appraisal to establish the fair market value, which may be provided by the donor or obtained independently by the nonprofit.

Decisions regarding the disposition of donated stock involve instructing the brokerage firm on its liquidation. The timing of the sale often considers market conditions, the organization’s immediate cash flow needs, and potential implications related to Unrelated Business Income Tax (UBIT). Most nonprofits opt to sell donated stock promptly to convert it into usable funds and to minimize market risk. Once sold, the proceeds are then transferred from the brokerage account to the organization’s primary operating accounts.

Nonprofits also have tax and information reporting obligations related to stock donations. If the organization sells donated appreciated property, including stock, with a claimed value exceeding $5,000 within three years of its donation, it may be required to file IRS Form 8282, Donee Information Return. This form reports the sale of the property, the amount of gross proceeds, and the donor’s identifying information. Organizations must also consider UBIT implications, particularly if the donated stock is debt-financed or if the organization engages in activities with the stock that could be deemed an unrelated trade or business.

Maintaining thorough and accurate records for all stock donations is paramount for audit and compliance. This includes retaining copies of transfer documents, donor acknowledgment letters, all valuation data, confirmations of sale, and any relevant tax forms. These records should be kept for at least three years, or longer, to address potential inquiries from the IRS or other regulatory bodies. Comprehensive record-keeping ensures transparency and accountability.